Balwin's strategic rental model initiative to unlock value throughout the cycle

Posted On Wednesday, 05 December 2018 19:35 Published by
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Balwin Properties, the JSE’s only national large-scale developer of turnkey sectional-title apartments and surrounding infrastructure aimed at the mid- to upper market segment, today announced a strategic rental model initiative that will see it access its extensive land bank quicker and share in annuity rental and other income over the longer term. 

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Balwin Chief Executive, Steve Brookes comments:

“Our ambition has always been to develop and retain a rental model that would ensure annuity income for the Company.

“We believe that the rental model initiative in its current form provides us with significant value-unlocking opportunities without any cashflow implications. We will continue with our current model of developing, selling and handing over developments in phases to mitigate risk.

“It is defensive, as rentals are more popular in a higher interest rate environment, whilst prospective clients opt to buy when interest rates are low. This allows us to not only perform through the cycle, but we anticipate that the annuity income derived from the rentals will smooth our cash flow in the longer term.

“We are also able to unlock our 12-year land bank much quicker, expediting revenue contribution from fibre-to-home and solar energy installations as we achieve critical mass.”

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In terms of the initial agreement, Balwin will dispose of a total of 156 units to Balwin Rentals Proprietary Limited (“the Rental Company”) for a total cash consideration of R98.43 million. The unadjusted profits after tax from the disposals of R18.54 million will be reinvested into Balwin’s existing development pipeline.

In addition, Balwin has subscribed for a 25% interest in the Rental Company at no cost, enabling it to share in 25% of the net rental income on an annuity basis.

“The rental units will retain Balwin’s quality and innovative design but are distinct from our build-to-sell models, both in architecture and specification levels.

“We expect that leases will range from R4 500 to R8 500 per month. Lifestyle elements such as Balwin’s clubhouse including a gym and restaurants will still form part of the rental developments,” added Brookes.

The disposal did not require shareholder approval and an independent expert has confirmed that the disposal is fair and reasonable in relation to Balwin’s shareholders.

Balwin expects to make further announcements with regards to the sale of additional rental developments in due course, as regulatory approvals are received.

Last modified on Wednesday, 05 December 2018 19:48

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